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A Change of Leadership For Big Oil Companies

THE WALL STREET JOURNAL: A Change of Leadership For Big Oil Companies

“Under Mr. Raymond, Exxon has become industry’s tallest lightning rod in the debate over how much fossil-fuel emissions may be contributing to a warming of earth’s temperatures. Fellow oil giants BP PLC and Royal Dutch Shell PLC have taken an environmentally friendly stance with initiatives that promote the development of alternative fuels.”

Friday 5 August 2005
Raymond Turns Over Reins
To Tillerson as Exxon Hits
Height of Earnings Powers

By SUSAN WARREN and JEFFREY BALL
Staff Reporters of THE WALL STREET JOURNAL
August 5, 2005; Page A3

Rex W. Tillerson, anointed to become Exxon Mobil Corp.’s new chairman and chief executive officer at the end of the year, is going to have one of the toughest acts to follow in modern management history.

Exxon yesterday said Lee R. Raymond will retire at the end of this year, ending more than two years of speculation about when he would turn over the reins. Mr. Tillerson, 53 years old, became heir apparent in March 2004 when he was named to the position of president. Exxon said it expects its board to elect Mr. Tillerson as Mr. Raymond’s successor.

Now Mr. Tillerson finds himself with a similar dilemma as General Electric Co. Chief Executive Jeffrey R. Immelt faced in 2001 when he succeeded former CEO John F. “Jack” Welch: How do you follow a legend?

Mr. Raymond, 66, took over a successful company in 1993 and made it more successful by nearly every measure, including engineering the 1999 merger with rival Mobil Corp. Exxon, the largest U.S. public company by market value, is also the world’s largest publicly traded energy company by the same measure. Some analysts believe Mr. Raymond’s tight managerial controls were at the heart of Exxon’s steady financial performance whether oil prices were high or low, and wonder whether Mr. Tillerson will be similarly hard-nosed and hands-on in running the behemoth.

To keep growing, Exxon under Mr. Tillerson will have to negotiate the risks of massive projects that are increasing in scale and cost, said Daniel Yergin, chairman of Cambridge Energy Research Associates. While big, new projects cost a few hundreds of millions of dollars when Mr. Raymond took over, “The big projects of the future will be in excess of $10 billion,” Mr. Yergin said.

Since being named president, Mr. Tillerson has taken a more public role, often appearing jointly with Mr. Raymond before investors and media to present the image of a smooth succession plan. Observers have noted the quieter, more courtly demeanor of Mr. Tillerson, a native Texan who joined Exxon in 1975, especially considering Mr. Raymond’s reputation for being testy with outsiders. But there may be little else to distinguish the management styles of the two career Exxon men. (Exxon said Messrs. Tillerson and Raymond weren’t available for comment.)

So far, Mr. Tillerson, who has been groomed for the CEO job for years, has shown every sign of being cast from the same mold as Mr. Raymond. Like Mr. Raymond, Mr. Tillerson came up through the production side of the business, which is the heart of the oil giant and provides the bulk of its profit. Mr. Tillerson was the architect of Exxon’s investments in Russia, one of the few places where there are still big fields to develop.

Now he will take over leadership of a company at the height of its earnings powers, churning out a record profit of $25.3 billion last year as oil prices soared on higher global demand and worries about sufficient supplies. But he also must figure out a way to keep the company growing by finding more of the vast deposits of oil and natural gas it needs to replace what it is pumping out of the ground. That task is more difficult, expensive and competitive than ever as giant oil reservoirs become harder to come by, and energy companies must navigate geographically and politically hostile regions to reach new oil supplies.

With Exxon’s profit soaring, some investors have criticized Mr. Raymond for not being more aggressive in spending Exxon’s rising cash hoard to secure the new supplies of oil and gas that the world’s biggest energy company will need to maintain its leading position in the coming decades.

Exxon last week said its capital and exploration spending increased in the second quarter, but company officials have been steadfast in saying they won’t be spooked into making imprudent investments based on market fears about future supplies.

In an interview with The Wall Street Journal in April, Mr. Tillerson backed that emphasis on boosting profit before production. “You give me a choice of producing more barrels or making more money, I’m going to make more money every time,” Mr. Tillerson said. He said Exxon has plenty of oil at its disposal, the equivalent of about 73 billion barrels of oil that it can develop. He placed a top priority on expanding supplies by developing new technology that can tap into previously inaccessible reservoirs.

Mr. Tillerson also indicates he will take the same skeptical approach to the prickly issue of global warming as Mr. Raymond. Under Mr. Raymond, Exxon has become industry’s tallest lightning rod in the debate over how much fossil-fuel emissions may be contributing to a warming of earth’s temperatures. Fellow oil giants BP PLC and Royal Dutch Shell PLC have taken an environmentally friendly stance with initiatives that promote the development of alternative fuels.

–Bhushan Bahree contributed to this article.

Write to Susan Warren at [email protected] and Jeffrey Ball at [email protected]

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